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Taxation  in  Ohio 

Report  of  The  Civic 
League  of  Cleveland 


1915 


The  Civic  League  of  Cleveland 

821  Engineers  Building 
Cleveland,  O. 


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STATEMENT  OF  THE  EXECUTIVE  BOARD 

In  the  investigation  of  the  financial  condition  of  the  municipalities,  the  schools 
and  other  governmental  agencies  in  Cuyahoga  County,  we  have  become  clearly 
convinced  that  permanent  relief  from  the  present  impoverished  condition  of  our 
local  governments  will  not  be  secured  until  Ohio's  antiquated  and  unjust  tax 
system  is  abolished  and  a  more  modern,  equitable  and  just  system  is  established. 
For  that  reason,  we  have  prepared  the  following  report  on  Taxation,  to  be  pre- 
sented to  the  delegates  at  the  Tax  Conference  in  Columbus,  held  under  the 
auspices  of  the  Ohio  Municipal  League  on  February  11th  and  12th,  1915,  and  to 
the  members  of  the  General  Assembly  which  is  now  in  session. 

It  is  hoped  that  out  of  the  discussion  there  can  be  developed  a  constitutional 
amendment  providing  a  rational  tax  system,  which  the  people  of  Ohio  will  be 
willing  to  accept. 

We  have  refrained  from  discussing  those  much  debated  questions,  such  as 

single  tax,  taxation  of  land  values,  exemptions  from  taxation,  increment  tax ;  and 

have  confined  the  report  to  the  two  principles  which  we  believe  most  of  our 

citizens  can  accept  as  essential  to  an  equitable  and  just  method  of  raising  public 

revenue. 

THE  EXECUTIVE  BOARD: 

Morris  A.  Black,  Wm.  G.  Lee, 

Arthur  D.  Baldwin,  F.  F.  Prentiss, 

Henry  E.  Bourne,  L.  Q.  Rawson, 

J.  W.  Frazier,  Duane  H.  Tilden. 

Mayo  Fesler,  Secretary. 

E.  M.  Hall,  Jr.,  Ass't.  Secretary. 

(Bascom  Little  and  Tnoraas  P.  Ballard  refrained  from  participating  in  the 
preparation  of  this  report  because  of  the  fact  that  they  are  also  members  of  the 
Tax  Commission  appointed  by  the  Mayor  of;  Cleveland). 


SUMMARY  OF  REPORT 

I.     GENERAL  PROPERTY  TAX. 

a.  Condemned  by  tax  commissions,  tax  conferences  and  tax  administra- 
tors everywhere. 

b.  Abandoned  in  every  country  except  the  United  States — progressive 
states  adopting  amendments  providing  more  rational  system. 

c.  Unjust,  because  it  attempts  to  put  uniform  burden  on  all  classes  of 
property  regardless  of  their  economic  nature  or  ability  to  pay. 

d.  Impracticable,  because  a  uniform  tax  cannot  be  enforced. 

e.  Unsuited  to  modern  industrial  and  economic  conditions  . 

II.     OHIO  CENTRALIZED  TAX  MACHINERY. 

a.  Is  properly  organized,  but  has  failed  to  force  personal  property,  espe- 
cially intangibles,  on  to  the  duplicate. 

b.  The  tax  burden  still  remains  unequally  distributed. 

c.  The  system  is  driving  capital  out  of  the  state. 

III.     THE  REMEDY. 

A  constitutional  amendment  providing  for  classification  of  property 
and  separation  of  sources  of  revenue. 

a.  Classification  of  property. 

So  that  tax  rate  can  be  adjusted  to  each  class  according  to  its 

ability  to  pay. 

Working  satisfactorily  in  eight  states. 

Constitutional  amendments  submitted  in  seven  other  states. 

b.  Separation  of  Sources  of  Revenue. 
Advantages : 

Conforms  to  natural  conditions  of  property. 
Places  property  where  it  can  best  be  assessed. 
Makes  possible  assessment  of  corporate  property  by  experts. 
Extends  the  principle  of  local  self  government. 
Insures  proper  distribution  of  revenues  between  state  and  local 
government. 

Feasible,  because  state  is  now  getting  practically  all  state  reve- 
nue from  indirect  taxes. 
Experience  in  other  states  entirely  satisfactory. 

IV.     CONSTITUTIONAL  TAX  AMENDMENT. 

Must  be  flexible  enough  to  meet  changing  economic  conditions. 

Must  be  just  and  equal  in  distribution  of  tax  burden. 

Must  be  certain  of  yielding  sufficient  revenue  for  public  purposes. 


305168 


TAXATION  IN  OHIO 

Ohio,  the  sixth  state  in  the  union  in  population,  fifth  in  wealth,  fifth  in  the 
extent  of  its  manufacturing  industries,  and  among  the  first  in  the  general  intelli- 
gence and  culture  of  its  people,  is  generally  recognized  as  one  of  the  last  and 
least  progressive  among  the  states  in  the  character  of  its  taxing  system.  At  every 
tax  conference,  Ohio  is  pointed  out  as  the  "horrible  example"  of  what  not  to  do 
in  taxation.  She  is  cited  as  the  one  of  the  states  which  has  blindly  insisted  upon 
maintaining  and  trying  to  enforce  the  unscientific,  unjust  and  antiquated  general 
property  tax.  She  is  usually  referred  to  as  the  state  where  the  most  rigorous  tax 
inquisitor  laws  have  been  enacted;  where  the  most  vigorous  effort  has  been 
exerted  to  enforce  an  antiquated  and  unenforcible  tax  system;  where  rigid  limi- 
tations have  been  placed  on  the  rate;  where  centralization  of  taxing  authority 
has  been  introduced;  and  where  every  device,  known  to  law,  has  been  tried  in 
order  to  prove  that  sufficient  revenue  can  be  raised  by  taxing  real  and  personal 
property  at  a  uniform  rate  and  at  its  full  value — all  with  the  general  result  that 
the  system  has  been  proved  a  failure  and  uniformity  has  come  more  and  more 
to  be  merely  another  synonym  for  inequality. 

GENERAL  PROPERTY  TAX— ADOPTED  1825 

The  general  property  tax  was  adopted  in  this  state  as  long  ago  as  1825  and 
all  taxable  property,  both  real  and  personal,  was  placed  on  the  grand  duplicate. 
It  seems  to  have  been  so  satisfactory  that  in  1851,  the  principle  was  written  into 
the  new  constitution  in  the  form  of  a  general  property  tax,  to  be  operative  uni- 
formly throughout  the  state  and  applied  uniformly  to  all  classes  and  kinds  of 
property. 

When  the  general  property  tax  was  first  adopted  by  statute,  and  even  when 
it  was  first  established  in  the  constitution  in  1851,  it  was  a  fairly  equitable  system, 
because  property  consisted  chiefly  of  land,  which  was  then  much  less  valuable 
than  at  present,  a  comparatively  small  amount  of  tangible  personal  property 
which  could  easily  be  seen  and  taxed,  and  an  insignificant  amount  of  intangible 
personal  property  which  could  evade  taxation.  Railroads,  telegraphs,  public 
utilities  and  other  large  corporate  interests  did  not  exist;  governmental  expenses 
were  small ;  the  rate  was  low,  and  there  was  therefore  less  incentive  to  evade  the 
payment  of  taxes. 

CONDITIONS  HAVE  CHANGED 

But  marked  changes  have  taken  place  since  then.  Rural  land  values  have 
increased  greatly;  urban  land  values  have  advanced  by  leaps  and  bounds;  the 
amount  of  personal  property  has  increased  enormously;  the  industrial  and  com- 
mercial interests  have  developed  until  they  surpass  in  value  the  agricultural ;  and 


Taxation  in  Ohio 


the  forms  of  wealth  have  become  so  varied  and  complicated  that  an  entirely  dif- 
ferent set  of  tax  conditions  exist  at  the  present  time.  A  system  of  taxation  which 
was  fairly  equitable  and  just  in  1851  has,  because  of  these  great  economic  and 
social  changes,  become  unequal,  unjust  and  entirely  unsuited  to  the  needs  of  a 
great  and  growing  industrial  state.  Taxation,  like  all  other  incidents  of  a  grow- 
ing civilization,  must  be  altered  to  meet  changing  needs. 

The  experience  of  every  state  and  nation  of  any  importance,  where  the  gen- 
eral property  tax  and  the  unit  rule  have  been  applied,  has  resulted  in  the  same 
inequalities  and  injustices.  Special  tax  commissions,  appointed  to  investigate  the 
tax  situation  in  various  states  have,  with  one  exception,  unsparingly  condemned 
the  system  as  impractical  in  administration  and  fruitful  of  great  injustice.  They 
have  uniformly  advised  the  abandonment  of  the  general  property  tax  and  the 
substitution  of  a  form  of  taxation  which  adapts  itself  to  the  nature  of  the 
property  to  be  taxed. 

GENERAL  PROPERTY  TAX  UNIVERSALLY  CONDEMNED 

In  the  following  states  tax  commissions  appointed  to  investigate  the  sources 
of  revenue  and  methods  of  taxation  have  made  such  recommendations:  Cali- 
fornia, Illinois,  Kentucky,  Louisiana,  Maine,  Maryland,  Massachusetts,  Missouri, 
New  Hampshire,  Ohio,  Oregon,  Washington  and  Virginia. 

A  special  tax  commission  appointed  in  Ohio  as  early  as  1893,  speaking  of 
the  evils  of  the  Ohio  system,  said: 

"The  system  (the  general  property  tax)  as  it  is  actually  administered,  results 
in  debauching  the  moral  sense.  It  is  a  school  of  perjury.  It  sends  large  amounts 
of  property  into  hiding.  It  drives  capital  in  large  quantities  from  the  state. 
Worst  of  all,  it  imposes  the  burdens  upon  the  farmers  in  the  country,  all  of  whose 
property  is  taxed  because  it  is  tangible,  upon  the  man  who  is  scrupulously  honest, 
and  upon  the  guardian  and  executors  and  trustees  whose  accounts  are  matters  of 
public  record." 

Another  Special  Tax  Commission,  appointed  in  1906,  came  to  practically 
the  same  conclusions. 

"We  have  found  that  the  general  property  tax  is  a  failure  for  purposes  either 
of  revenue  or  equality;  that  more  than  half  of  the  total  wealth  of  the  state  in  the 
form  of  tangible  property  alone  escapes  taxation;  that  of  intangible  property,  such 
as  moneys,  credits,  stocks  and  bonds,  subject  to  taxation  under  existing  laws,  not 

ten.  per  cent,  perhaps  not  five  per  cent,  is  listed  on  the  duplicate 

The  general  property  tax  has  long  since  served  its  day.  Ever  since  its  adoption, 
the  grand  duplicate  of  the  state  has  shown  more  and  more  clearly  the  unequality 
of  contribution  between  real  and  personal  property.  In  1852,  the  grand  duplicate 
of  all  property,  real  and  personal,  in  the  state  was  $507,581,000;  in  1907  it  was 
$2,280,563,198.  In  1852  the  total  value  of  all  real  estate  was  $254,937,000.  In  1907 
it  was  $1,544,391,318.  In  1852  the  total  value  of  all  personal  property  in  the  state 
was  $152,644,000;  in  1907  it  was  $736,171,880.  In  other  words,  the  first  year  after 
the  adoption  of  the  present  constitution,  the  tax  value  of  all  real  estate  in  Ohio 
was  2Yz  times  that  of  all  personal  property,  while  at  the  present  day,  after  fifty- 
five  years  of  development  in  railroads,  telegraphs,  telephones,  electric  light  and 
other  modern  utilities,  as  well  as  industrial  enterprises  of  every  kind,  with  the  subse- 
quent enormous  growth  in  the  issue  of  stocks  and  bonds,  the  tax  value  of  all  real 
estate  in  Ohio  is  still  2  1-10  times  that  of  all  personal  property.  And  this  is  true 
notwithstanding  the  fact  that  corporations  generally  in  this  state  are  required  to 
return  as  personal  property  all  real  estate  used  in  the  operaion  of  their  business." 


Taxation  in  Ohio 


The  Missouri  Special  Tax  Commission  in  1906,  took  the  same  view : 

"No  change  can  be  made  in  our  revenue  system  correcting  the  existing  inequali- 
ties without  amending  the  constitution  of  the  state  ....  We  are  satis- 
fied from  careful  study  of  our  revenue  system  that  a  change  is  required  to  remedy 
existing  radical  defects  and  to  secure  equality  to  our  citizens  in  bearing  the  public 
burdens  of  the  state " 

A  special  tax  commission  in  California  in  1905  took  a  similar  position : 

"The  present  tax  system  of  California  is  antiquated.  It  was  two  hundred  years 
old  when  first  adopted  in  this  state  and  has  not  been  essentially  modified  during 

the  fifty  years  that  we  have  used  it The  greatest  inequality  in  the 

operation  of  our  revenue  system  arises  from  the  fact  that  personal  property  escapes 

taxation  almost  entirely Comparatively  little  property  in  the  form 

of  stocks  and  bonds  of  foreign  corporations  or  of  credits  or  amounts  due  to 
residents   of  the   state   outside   the   state  is   ever  placed   on  the  assessment   rolls. 

.....  Our  experience  in  California  in  regard  to  taxation  of  this  class  of 
intangible  property  is  the  exact  counterpart  of  the  experience  of  every  one  of  the 
American  states  which  have  attempted  to  enforce  similar  laws  ....  And 
the  underlying  reason  for  the  failure  to  reach  it  and  for  the  objection  which  people 
in  general  have  to  paying  it  is  principally  to  be  found  in  the  fundamental  fact  that 
it  should  not  be  taxed  at  all." 

The  Virginia  Special  Taxation  Commission  in   1911  said  of  the  personal 

property  tax: 

"We  have  found  in  the  schedule  for  the  taxation  of  personal  property  the  most 
complete  breakdown  of  any  tax  law  on  our  books.  Inequality,  undervaluation, 
neglect  of  the  law  and  carelessness  of  assessment." 

The  Louisiana  Tax  Commission  in  1908,  in  its  recommendation  that  the 

state  abandon  the  effort  to  tax  all  property  at  a  uniform  rate,  said  of  the  tax  on 

intangibles : 

"The   universal   experience   of  mankind   shows   that   the   tax   on   this   kind   of 

property  cannot  be  collected,  with  fairness  and   impartiality The 

opinion  of  political  economists,  tax  officials  and  tax  commissions  are  absolutely 
unanimous  on  this  question Indeed,  its  failure  is  shown  by  testi- 
mony overwhelming  in  quantity,  unimpeachable  in  quality  and  so  far  as  we  read 
without  a  dissenting  voice." 

CONDEMNED  BY  TAX  CONFERENCE 

A  committee  of  the  International  Tax  Conference,  composed  of  the  ablest 
and  most  experienced  men  of  the  country,  who  are  giving  serious  and  unprej- 
udiced thought  to  the  question  of  taxation,  was  appointed  in  1909  to  inquire  into 
the  causes  of  the  failure  of  the  general  property  tax.  At  the  1910  conference, 
they  said  in  the  conclusion  of  their  report : 

"To  sum  up,  your  Committee  finds: 

That  the  general  property  tax  has  broken  down. 

That  it  has  not  been  more  successful  under  strict  administration  than  where 
the  administration  is  lax. 

That  in  the  states  where  its  administration  has  been  the  most  stringent,  the 
tendency  of  public  opinion  and  legislation  is  not  toward  still  more  stringent 
administration,  but  toward  a  modification  of  the  system. 

That  the  same  tendency  is  evident  in  the  states  where  the  administration  has 
has  been  more  lax. 

That  the  states  which  have  modified  or  abandoned  the  general  property  tax 
show  no  intention  of  returning  to  it. 

That  in  the  states  where  the  general  property  tax  is  required  by  constitutional 
provisions,  there  is  a  growing  demand  for  the  repeal  of  such  provisions. 

We  conclude,  therefore,  that  the  failure  of  the  general  property  tax  is  due  to 
the  inherent  defects  of  the  theory.  That  even  measurably  fair  and  effective  admin- 
istration is  unattainable,  and  that  all  attempts  to  strengthen  ,such  administration 
serve  simply  to  accentuate  and  prolong  the  inequalities  and  unjust  operation  of  the 
system." 


Taxation  in  Ohio 


The  conference,  as  a  body,  endorsed  the  report  of  the  committee  by  adopt- 
ing resolutions  declaring  the  general  property  tax  a  failure,  and  urged  upon  the 
states  the  adoption  of  some  more  equitable  system  of  raising  revenue  for  public 
purposes. 

OHIO  CONTINUES  ANTIQUATED  SYSTEM 

Notwithstanding  this  almost  unanimous  opinion  of  economists,  investigators, 
tax  commissions,  and  those  charged  with  the  administration  of  the  system,  that 
the  general  property  tax  is  unjust,  that  it  leads  to  serious  inequalities  and  that, 
in  so  far  as  administration  is  concerned,  it  is  impracticable,  the  Ohio  Constitutional 
Convention,  in  1912,  forced  a  continuance  of  the  system,  and  the  legislature  by 
means  of  the  Smith  one  percent  tax  law,  Warnes  law  and  other  tax  laws  have 
sought  by  every  legislative  means,  to  enforce  the  taxing  of  all  property  by  the 
rigid  rule  of  uniformity. 

One  of  the  chief  arguments  advanced  in  favor  of  the  Smith  one  percent  law 
was  that,  if  the  maximum  rate  were  fixed  and  could  be  kept  at  one  percent,  tangi- 
bles would  flock  out  of  hiding  and  men  would  make  voluntary  return  of  all  their 
personal  property,  and  the  state  and  its  political  subdivisions  would  have  ample 
revenue  for  the  operation  of  government.  Former  Governor  Harmon,  the  law's 
chief  advocate,  said  in  his  message  to  the  General  Assembly : 

"The  constitution  points  out  the  only  road  to  fairness.  And  it  is  the  only  safe 
road  for  the  great  majority  of  tax  payers It  is  the  universal  experi- 
ence that  in  struggles  for  special  advantages  those  get  them  who  need  them  least, 
while  others  are  made  to  pay  for  them.  All  property  of  every  sort  should,  there- 
fore, be  valued  by  the  rule  ordained  by  the  constitution." 

The  Governor  and  the  majority  in  the  legislature  declared  that  a  low  rate 
and  an  efficient  body  of  tax  officials  could  equalize  the  assessments  and  bring 
intangibles  out  of  hiding,  and  force  personal  property  on  to  the  duplicate. 

In  1910,  before  the  new  law  was  effective,  personal  property  returned  for 
taxation  amounted  to  $827,370,943,  and  constituted  32.3%  of  the  grand  duplicate. 
In  1913  it  had  increased  to  $2,300,155,670,  and  constituted  34.1%  of  the  grand 
duplicate.  In  the  same  three  years,  real  estate  on  the  duplicate  increased  from 
$1,656,944,631  to  $4,602,951,278.  In  other  words,  the  two  forms  of  property 
held  their  relative  positions  as  to  the  amount  of  increase.  Personal  property 
showed  no  relatively  stronger  disposition  to  get  on  the  duplicate  than  it  had 
under  the  old  law. 

CENTRALIZED  TAX  MACHINERY 

.  In  1913,  the  General  Assembly  determined  to  strengthen  the  taxation 
machinery  by  centralizing  it  under  state  control.  The  Warnes  law  was  passed, 
providing  for  deputy  tax  commissioners  in  each  county,  appointed  by  the  Gov- 
ernor; and  some  1966  deputy  assessors  were  appointed  by  the  deputy  commis- 
sioners from  civil  service  eligible  lists.  Orders  were  sent  out  that  all  property, 
both  real  and  personal,  must  be  placed  on  the  duplicate.  A  more  efficient  tax 
machinery  and  organization  has  probably  not  existed  in  this  or  any  other  state, 
and  tax  officials  have  probably  never  had  greater  encouragement  to  perform  their 
duty  fully  and  without  favor;  yet,  in  spite  of  their  industry  and  efficiency,  the 


8  Taxation  in  Ohio 


ratio  of  personal  property  to  real  estate  continues  approximately  the  same,  i.  e., 
62^3%  of  real  estate,  and  33^5%  of  personal  property.  In  a  growing  industrial 
state  like  Ohio,  the  true  value  of  personal  property  is,  no  doubt  three  or  four 
times  as  great  as  that  of  real  estate;  yet  only  one  third  of  the  total  returns  con- 
sist of  personalty. 

PERSONAL  PROPERTY  ON  GRAND  DUPLICATE 

The  following  table,  compiled  from  the  state  auditor's  and  tax  commission's 
reports,  showing  the  total  of  the  grand  duplicate  for  the  decades  from  1850  and 
the  ratio  of  real  and  personal  property  returns  is  illuminating  on  this  point. 


Percent 

Personal 

Percent 

Year 

Real  Property 

of  Total 

Property 

of  Total 

TOTAL 

1850 

341,388,838 

77.6% 

98,487,502 

22.3% 

439,876,340 

1860 

639,894,311 

72.0% 

248,408,290 

27.9% 

888,302,601 

1870 

707,846,836 

'     60.6% 

459,884,861 

39.3% 

1,167,731,697 

1880 

1,102,049,931 

70.7% 

456,166,134 

29.2% 

1,558,215,965 

1890 

1,232,305,312 

69.3% 

545,933,165 

30.7% 

1,778,138,477 

1900 

1,274,203,721 

69.4% 

559,849,507 

30.2% 

1,832,053,228 

1910 

1,656,944,631 

63.3% 

827,370,943 

33.3% 

2,484,315,574 

1911 

4,273,436,712 

68.9%. 

1,927,863,876 

31.08% 

6,201,303,588 

1912 

4,335,665,521 

66.8% 

2,145,393,637 

33.1% 

6,481,059,158 

1913 

4,418,953,299 

65.6% 

2,300,115,670 

33.8% 

6,790,068,969 

1914 

4,602,951,278 

60.7% 

*2,979.401,219 

39.2% 

7,582,352,497 

*Th 

is  includes  real  estate  belonging 

to  public  utility  companies  and  the  $311,000,000 

assessed 

against  John  D. 

Rockefeller. 

In  connection  with  the  inequalities  produced  by  failure  of  so  large  a  per- 
centage of  personal  property  to  appear  on  the  duplicate  it  is  interesting  to  note  the 
inequalities  in  the  assessments  of  personalty.  For  example,  the  1912  grand 
duplicate  shows  859,101  horses  returned  at  an  average  value  of  $107.68  each.  Yet 
in  the  several  counties  the  valuation  varies  from  $82  to  $138  per  head.  1,273,688 
head  of  cattle  were  returned  at  an  average  appraisal  of  $33.54  per  head,  which 
varied  in  the  several  counties  from  $23  to  $44. 

INTANGIBLES  ON  THE  DUPLICATE 

The  following  table  will  show  the  ineffectiveness  of  even  the  most  efficient 
taxing  system  to  bring  out  intangibles,  including  money,  credits  and  stocks  and 
bonds. 


Total 

Total 

Percent 

Year 

Grand  Duplicate 

Intangibles 

of  Total 

1870 

1,167,731,697 

136,273,860 

11.67% 

1900 

1,832,053,228 

143,389,135 

7.85% 

1912 

4,335,665,521 

306,756,000 

7.08% 

1914 

*7,271, 352,497 

498,548,114 

6.84% 

The  $311,000,000  assessed  against  Mr.  Rockefeller  is  subtracted  from  both  columns. 

A  more  convincing  proof  that  the  law  has  failed  to  force  intangibles  on  the 
the  tax  list  could  not  be  presented.  The  true  value  of  taxable  intangible  prop- 
erty in  Ohio  has  been  conservatively  estimated  at  $1,500,000,000.     Only  $498,- 


Taxation  in  Ohio 


000,000  or  less  than  one-third  is  now  on  the  duplicate.  According  to  the  findings 
of  the  Cuyahoga  County  Tax  Commission,  it  is  costing  7%  of  the  personal  tax 
collected  to  get  personal  property  on  the  duplicate,  and  1/33  of  1%  of  real  estate. 
If  the  1914  duplicate  is  the  "result  of  the  enforcement  of  all  tax  laws  which  have 
been  on  the  books  for  many  years,"  as  claimed  by  the  State  Tax  Commission,  it 
would  be  interesting  to  speculate  on  the  cost  of  attempting  to  secure  a  full  return 
on  the  other  two  thirds  of  intangibles. 

BALTIMORE  AND  CLEVELAND  COMPARED 

In  contrast  to  the  Ohio  situation,  we  would  cite  the  experience  of  Mary- 
land. The  legislature  of  that  state  in  1896  made  a  low  rate  of  3  mills  on  intangi- 
ble property  for  the  city  of  Baltimore.  The  assessment  at  that  time  was  only 
$6,000,000.  Under  the  3  mill  law,  the  return  on  intangibles  increased  rapidly 
until  in  1914  the  assessment  rolls  showed  a  total  of  $191,000,000.  The  amount 
of  taxes  collected  on  these  intangibles  had  increased  from  $12,000  to  $537,000. 
In  the  City  of  Cleveland,  a  city  of  practically  the  same  population,  but  with  its 
15  mill  tax,  the  1914  duplicate,  including  both  individual  and  corporate  intangi- 
bles, shows  a  total  of  only  $21,458,590;  and  if  the  returns  from  Bratenahl, 
Cleveland  Heights,  East  Cleveland  and  Lakewood  be  added  to  this,  the  sum 
total  of  the  intangible  returns  for  this  entire  industrial  district  is  only  $33,878,850. 
The  total  tax  collected  on  this  total  at  15  mills  will  amount  to  less  than  $500,000 
or  less  than  Baltimore's  collection  with  its  3  mill  levy. 

We  have  no  desire  to  minimize,  in  the  least,  the  effectiveness  of  the  work 
done  by  the  state  tax  commission  and  county  tax  authorities — the  figures  show 
enormous  increases  in  both  real  and  personal  property,  but  they  also  show  that 
even  under  thoroughly  efficient  tax  machinery  and  a  comparatively  low  tax  rate, 
intangibles  are  not  brought  out  of  hiding  and  uniformity  still  means  inequality  and 
injustice.  The  facts  are,  according  to  Mr.  Pleydell  of  the  New  York  Tax  Asso- 
ciation, that  the  revenues  derived  from  intangibles  in  Ohio  are  smaller  relatively 
than  in  many  states  where  the  general  property  tax  and  the  uniform  rule  do  not 
prevail.  Experience  shows  that  a  low  and  reasonable  rate  on  intangibles  will  pro- 
duce a  greater  revenue  than  a  high  rate. 

SYSTEM— WRONG  IN  PRINCIPLE 

But  even  if  the  one  percent  law  had  been  the  efficient  instrument  which  its 
friends  claimed  for  it  and  if  practically  all  tangible  and  intangible  property  had 
been  returned,  this  would  not  have  remedied  the  evils  of  the  general  property 
tax;  for  a  tax  on  all  property  levied  according  to  a  uniform  rule  is  wrong  in 
principle  and  a  lower  rate  only  lessens  the  wrong  in  degree. 

To  any  thoughtful  mind  it  is  clear  that  the  various  forms  of  property  differ 
materially  in  their  nature  and  productivity,  in  the  degree  of  benefit  which  they 
derive  from  the  expenditure  of  public  revenue  for  their  protection  or  improve- 
ments, and  in  their  ability  to  contribute  for  public  purposes.  For  example,  land 
especially  urban  real  estate,  yields  enormous  returns  in  the  form  of  increased 
values  and  rents.    It  has  a  productive  value,  according  to  location  ranging  from 


10  Taxation  in  Ohio 


10%  to  30%.  Tangible  personal  property  in  the  form  of  buildings  is  usually 
expected  to  yield  about  10%  while  intangible  personals,  consisting  largely  of 
securities,  yield  an  income  on  the  average  of  4%  to  5%.  It  is  evident  that  a 
uniform  rate  which  in  the  one  instance  takes  one-seventh  of  the  total  income  for 
public  purposes,  and  in  the  other  only  one-third,  is  unjust  and  unequal.  And 
this  inequality  is  magnified  when  it  is  realized  that  real  estate  benefits  enormously 
from  public  expenditures  for  improvements,  while  intangible  personal  property 
benefits  only  slightly.  In  other  words,  a  reasonable  rate  of  taxation  on  real 
estate  becomes  practical  confiscation  when  applied  to  moneys  and  credits. 

It  is  unreasonable  to  ask  that  money  drawing  4%  to  6%  should  pay  $1.55 
out  of  every  $4.00  or  $6.00  income  into  the  public  treasury;  while  real  estate 
pays  only  $1.55  out  of  every  $10  or  $30  income  and  increment,  and  receives  in 
return  the  greater  benefits  from  the  contribution.  It  is  generally  recognized  that 
government  should  not  take  more  than  8%  to  10%  of  the  income  of  any  form 
of  property.  The  present  tax  laws  in  Ohio  are  taking  nearly  25%  of  the  income 
on  moneys  and  credits  and  less  than  8%  of  the  income,  including  rents  and  incre- 
ment, on  urban  real  estate.  The  injustice  and  inequality  of  such  a  system  is 
apparent.  The  only  form  of  taxation  which  is  just  and  equal  is  that  which  is 
adjusted  to  the  different  classes  of  property  accordingly  as  they  differ  in  their 
nature  and  economic  characteristics. 

The  United   States   Supreme  Court  expressed  this  principle  clearly  when 

it  said: 

"This  Court  has  repeatedly  laid  down  the  doctrine  that  diversity  of  taxation 
both  with  respect  to  the  amount  imposed  and  the  various  species  of  property 
selected  for  bearing  its  burden,  or  for  being  exempt  from  them  is  not  inconsistent 
with  a  perfect  uniformity  and  equality  of  taxation  in  the  proper  sense  of  those 
terms;  and  that  a  system  which  imposes  the  same  tax  upon  species  of  property, 
irrespective  of  its  nature  or  condition  or  class,  will  be  destructive  of  the  principle 
of  uniformity  and  equality  in  taxation  and  of  a  just  adaptation  of  property  to  its 
burdens." 

Pacific  Express  v.  Siebert,  142  U.  S.  351. 

THE  REMEDY 

A  system  of  taxation  which  is  unsound  in  principle,  which  has  proved  its 
inadaptability  to  modern  conditions,  which  results  in  evasion  and  dishonesty,  and 
which,  if  fully  enforced,  would  prove  destructive  of  industry  and  would  amount 
to  confiscation,  should  be  abandoned  if  some  other  practicable  system  of  proven 
worth  is  available. 

We  have  such  a  system  at  hand — one  which  has  time  after  time  been  recom- 
mended to  states  for  adoption,  namely :  classification  of  property  for  purposes 
of  taxation  and  a  separation  of  sources  of  state  and  local  revenue. 

CLASSIFICATION  OF  PROPERTY 

Practically  every  tax  commission,  tax  administrator,  and  student  of  taxation 
has  recommended  the  adoption  of  the  principle  of  classification,  whereby  property 
can  be  classified  and  the  rate  of  taxation  adjusted  to  each  class  according  to  its 
economic  nature.  Every  progressive  tax  amendment  submitted  to  the  voters  of 
different  states  has  made  classification  an  essential  feature.    The  voters  of  Ohio 


Taxation  in  Ohio  11 


have  twice  approved  the  principle  by  a  majority  vote,  but  not  a  majority  of 
those  voting  at  the  election  as  required  under  the  old  constitutional  provision. 

New  York,  Pennsylvania,  California,  Minnesota,  Michigan,  Oklahoma, 
Arizona  and  Virginia  have  established  full  freedom  in  dealing  with  any  class  of 
property.  Four  states, — Kansas,  North  Carolina,  North  Dakota  and  Oregon — 
voted  upon  amendments  to  this  effect  in  November  and  three  other  states, — 
Indiana,  Kentucky  and  Maryland, — will  vote  upon  similar  constitutional  amend- 
ments in  1915.  Classification  is  slowly  displacing  uniformity  and  everywhere 
increases  the  revenues  derived,  especially  from  intangible  personal  property,  and 
results  in  a  far  greater  equalization  of  the  burden  of  taxation. 

EXPERIENCE  IN  MINNESOTA 

Minnesota,  which  for  years  tried  to  enforce  the  general  property  tax  and  unit 
rule,  in  1910  adopted  an  amendment  permitting  classification.  The  legislature 
in  1911  enacted  a  law  establishing  only  a  partial  classification,  by  providing  for 
a  separate  listing  of  money  and  certain  classes  of  credits,  and  imposing  a  flat 
tax  rate  of  three  mills  on  the  dollar  in  lieu  of  all  other  taxes.  The  results  are 
shown  in  the  following  statement  taken  from  the  1912  report  of  the  commission : 

"In  1910,  the  assessed  value  of  money  and  credits  now  included  in  the  three 
mill  tax  law  amounted  to  $13,919,806.  In  1911,  the  first  year  under  the  new  law, 
the  amount  returned  for  taxation  was  $115,676,136,  an  increase  of  731  per  cent  over 
the  preceding  year.  With  three  of  the  counties  of  the  state  estimated,  the  assess- 
ment of  money  and  credits  this  year  (1912)  is  $135,034,476,  being  an  increase  of 
16.7  per  cent  over  1911  and  870  per  cent  over  1910 That  the  assess- 
ment is  much  more  widely  and  hence  much  more  equitably  distributed  among  the 
people  is  shown  by  the  large  increase  in  the  number  of  people  assessed  under  the 
new  law." 

The  rate  of  taxation  on  that  class  of  property  in  1910  was  28  mills  and  the 
total  tax  collected  was  $379,754.58;  in  1911  when  the  tax  was  only  three  mills, 
the  total  collected  was  $347,028.38,  a  decrease  of  only  8.2%.  The  commission 
predicted  that  after  the  law  was  in  efficient  operation  the  total  returns  would 
exceed  those  obtained  from  a  higher  rate.  So  well  satisfied  have  the  people  of 
Minnesota  become  with  classification  that  the  principle  was  extended  in  1914 
to  all  property,  real  and  personal,  which  was  divided  into  four  classes  to  be 
assessed  at  different  percentages  of  their  true  value. 

A  classification  of  property  is,  in  our  opinion,  essential  to  a  fair  and  just 
system  of  taxation.  Different  methods  of  taxing  and  different  ratios  of  taxation 
for  different  classes  of  property  are  entirely  consistent  with  the  fundamental 
principles  of  equality,  so  long  as  they  do  not  permit  of  unwarranted  discrimi- 
nations. 

SEPARATION  OF  SOURCES  OF  REVENUE 

The  other  essential  change  necessary  in  Ohio's  taxing  system  to  make  it 
equitable  and  workable,  is  the  separation  of  sources  of  revenue,  by  means  of 
which  the  state  and  local  communities  will  have  different  sources  of  income. 
"This,"  says  Professor  Seligman,  "is  the  one  avenue  of  escape  which  is  now 
being  sought  by  our  most  progressive  commonwealths.',     The  general  principle 


12  Taxation  in  Ohio 


of  separation  which  has  been  adopted  by  these  states  reserves  to  the  state  the 
taxing  of  corporate  property  and  leaves  to  the  counties  and  cities  the  taxing  of 
real  estate  and  individual  personal  property.  The  advantages  of  separation  are 
many: 

A.  Separation  conforms  to  the  natural  conditions  of  property.  It  leaves  to 
the  state  the  revenues  from  those  properties  which  are  state  wide  in  their 
extent,  such  as  railroads,  telegraphs  and  telephones,  insurance  companies 
and  other  corporations — and  retains  for  the  local  county  and  city  govern- 
ments those  sources  which  are  essentially  local  in  character. 

B.  Separation  places  property  where  it  can  best  be  assessed.  If  it  is  not  then 
taxed,  the  locality  is  the  only  sufferer.  Under  the  present  policy  of  a  state 
levy  on  real  estate  and  individual  personal  property,  a  premium  is  placed 
upon  evasion  and  the  burden  falls  on  those  counties  which  most  efficiently 
enforce  the  law. 

Cuyahoga  County  and  a  few  other  populous  counties  in  the  state  have 
experienced  the  injustice  of  the  effort  to  tax  corporations,  statewide  in  their 
extent.  For  example,  the  rolling  stock  and  other  personal  property  of  railroads 
terminating  in  Cleveland  which  by  reason  of  the  source  of  business  should 
be  largely  taxed  in  Cleveland  and  at  the  Cleveland  rate  are  by  state  law  dis- 
tributed over  the  whole  extent  of  the  line,  the  property  is  taxed  in  propor- 
tion at  a  much  lower  rate  in  rural  counties,  furnishes  those  rural  counties 
a  source  of  revenue  all  out  of  proportion  to  actual  value  of  the  railroad 
property  in  the  country,  and  deprives  Cuyahoga  County  of  a  return  of  some 
$20,000,000  or  $25,000,000  which  legitimately  belongs  on  the  duplicate  from 
this  county.  This  unjust  distribution  has  existed  for  years.  Naturally  the 
railroads  have  not  complained  because  of  the  lower  rates  in  rural  counties. 
The  rural  counties  have  not  complained  because  of  the  additional  revenue. 
After  most  insistent  demands  on  the  part  of  the  local  tax  commission,  and 
the  county  auditor,  $15,000,000  of  this  sum  has  been  added  to  the  Cuyahoga 
duplicate  this  year.  If  separation  of  sources  of  revenue  had  been  in  opera- 
tion, as  in  some  other  states,  the  inducement  to  evade  their  share  of  state 
taxes  by  individual  counties  and  the  disposition  to  favor  rural  counties  to 
the  detriment  of  the  more  populous  would  have  been  removed. 

C.  Separation  makes  possible  the  assessment  of  corporate  property  by  experts, 
which  is  essential  to  any  equitable  assessment.  Local  assessors  are  not,  and, 
in  the  nature  of  the  case,  cannot  be  experts.  The  state  has  need  of  trained 
men  and  can  employ  them  for  full  time  service  in  the  tax  department. 

D.  Separation  extends  the  principle  of  "home  rule,"  It  enables  a  community 
to  determine  for  itself  how  much  it  is  willing  to  be  taxed  for  the  support  of 
the  local  government.  Diversity  of  conditions  and  interest  makes  diversity 
of  taxing  methods  entirely  feasible  and  desirable. 


Taxation  in  Ohio  13 


HOME  RULE  IN  TAXATION 

Whether  or  not  this  principle  of  home  rule  in  taxation  should  be  adopted 
to  the  same  extent  that  we  have  adopted  it  in  the  government  of  cities  is  open  to 
question.  Taxation  is  not  wholly  a  matter  of  local  concern — it  is  statewide  in 
its  effect.  The  economic  condition  of  one  section  directly  affects  the  condition 
of  all  sections  of  the  state.  This  is  especially  true  in  matters  of  taxation  which 
affect  so  quickly  the  whole  course  of  industrial  development  of  a  community. 

The  danger  which  accompanies  complete  home  rule  is  the  temptation  to 
unwise  exemptions,  especially  competitive  exemptions  adopted  by  different  com- 
munities for  the  purpose  of  attracting  new  industries.  Fostering  of  new  indus- 
tries by  various  kinds  of  exemptions  has  been  a  frequent  and  favorite  method  of 
building  up  one  city  to  the  disadvantage  of  another.  Competition  under  com- 
plete home  rule  would  become  keener  and  the  result  would  be  unrestricted  dis- 
criminations which  would  bring  temporary  advantages  to  those  communities 
adopting  such  a  policy,  but  a  future  disadvantage  both  to  such  communities  and 
the  state  as  a  whole. 

"Home  rule"  in  taxation  which  has  grown  out  of  the  demand  for  separa- 
tion of  sources  of  revenue  goes  much  further  than  the  principle  of  separation. 
Separation  still  leaves  in  the  hands  of  the  state  legislature  the  power  to  regulate 
for  the  sake  of  uniformity.  "Home  rule"  would  give  the  local  community  the 
authority  to  raise  its  revenue  in  whatever  way  it  pleases,  taxing  what  it  pleases 
and  exempting  what  it  pleases. 

The  state  needs  to  preserve  a  proper  balance  between  centralization  and 
complete  local  autonomy.  The  state  should  establish  certain  conditions  and 
limitations  which  will  prevent  unfair  discriminations  and  cut  throat  competi- 
tion; but  at  the  same  time,  give  to  the  local  communities  the  power  and  discre- 
tion to  decide  within  those  broad  limitations  what  property  will  be  taxed  for 
revenue  purposes  and  what  exemptions  shall  be  made.  The  principle  of  separa- 
tion has  been  accepted  by  the  voters  of  several  states  but  absolute  home  rule  in 
taxation  has,  in  every  instance,  been  rejected  usually  by  an  overwhelming 
majority  of  the  voters.  We  can  hardly  expect  the  voters  of  Ohio  to  look  with 
any  favor  on  a  proposal  for  complete  and  unrestricted  home  rule. 

TAX  SYSTEM—IMPOVERISHED  CITIES 

If  the  principle  of  separation  and  segregation  of  sources  of  revenue  had 
been  in  operation  in  Ohio  during  the  past  three  years,  the  impoverished  condi- 
tion of  the  cities  and  schools,  in  the  presence  of  an  overflowing  state  treasury 
would  not  have  occurred.  In  his  recent  report,  the  State  Auditor  reports  a 
balance  in  the  state  treasury  on  November  15,  1914,  of  $8,166,480,  while  a  spe- 
cial commission  appointed  to  investigate  the  financial  condition  of  cities  reports 
cities  failing  to  meet  the  growing  needs  of  their  increasing  populations,  shirking 
their  duties  to  their  sinking  funds,  carrying  large  floating  debts,  and  borrowing 
upon  future  tax  receipts  in  order  to  meet  current  demands.  No  better  proof  of 
this  impoverishment  is  needed  than  the  following  table,  prepared  by  the  finance 
commission,  showing  the  tax  loans  and  tax  advances  made  by  the  first  ten  cities 
during  1914. 


14 


Taxation  in  Ohio 


Percent- 
General  Purpose  Total       age  ad- 
City                                Tax  Receipts        Tax  Loans  Tax  Advance        Advances    vanced 

Cleveland $1,823,286.43      $765,000  $150,000      $915,000      50 

Cincinnati 751,856.88  1,280,000        1,208,000      73.1 

Columbus 525,850.69 

Toledo 484,458.61  26,100           261,000      53.8 

Youngstown 238,763.71  5,000             22,000        9.2 

Dayton 352,013.83          75,000  75,000      21.3 

Akron 296,893.82        152,000  152,000      51.2 

Canton 129,124.29          23,300  *                      23,300      18 

Springfield 123,108.02          77,000  77,000      62.5 

Hamilton 86,752.41            8,000  40,000             40,000      55.3 

One  of  the  recommendations  of  the  Commission  looking  toward  a  remedy 
for  this  bad  financial  condition  is  for  the  state  to  abandon  its  habit  of  resorting 

to  the  general  property  tax  for  a  portion  of  its  revenue. 

STATE  WITH  PLENTY— CITIES  IN  WANT 

The  following  comparative  table  of  per  capita  increases  or  decreases  in  tax 

revenue  as  between  the  state  and  the  cities,  points  to  the  need  of  some  new 

adjustment  of  the  division  of  revenues. 

Per  Capita  Tax 

State :                                         Population  Receipts 

1911  4,500,000  $  2.89 

1912  4,700,000  2.98 

1913  4,800,000  3.24 

1914  5,000,000  4.11 
Cleveland : 

1911  587,000  7.65 

1912  613,000  7.05 

1913  639,000  6.59 

1914  665,000  5.73 
Cincinnati : 

1911  368,000  10.16 

1912  372,000  9.62 

1913  376,000  10.26 

1914  380,000  9.89 
Columbus : 

1911  190,000  5.01 

1912  198,000  5.20 

1913  206,000  5.22 

1914  214,000  3.77 
Toledo: 

1911  173.000  6.22 

1912  198,000  6.11 

1913  183,000  5.63 

1914  188,000  5.16 

AVERAGE  OF 
TEN  CITIES 

1911  173,500  6.07 

1912  179,800  5.73 

1913  186,100  5.67 

1914  192,400  '  5.06 


Taxation  in  Ohio  15 


The  table  shows  that  the  state,  with  no  bonded  debt,  has  increased  its  per 
capita  income  in  the  four  years  from  $2.89  to  $4.11,  and  each  year  has  had  an 
increasingly  large  cash  balance  of  $3,000,000,  $5,000,000  and  $8,000,000,  while 
the  larger  cities  with  heavy  bonded  indebtedness  and  rapidly  increasing  popula- 
tions have  had  their  per  capita  income  gradually  decreased  each  year,  have 
struggled  with  growing  deficits,  and  have  finally  been  forced  to  resort  to  short 
time  loans.  A  separation  of  sources  of  revenue  would  have  prevented  such 
unequal  financial  conditions  and  such  unfair  discrimination..  The  state  is  already 
receiving  most  of  its  income  from  indirect  taxes  and  still  has  other  sources  of 
revenue  yet  untouched,  such  as  franchise  or  corporate  excess  taxes,  taxes  upon 
the  production  of  coal,  oil,  gas  and  other  minerals,  and  income  and  direct  inherit- 
ance taxes.  If  these  new  sources  were  developed  and  due  economy  shown  in  the 
operation  of  the  state  government,  the  state  could  abandon  permanently  the  gen- 
eral property  tax  for  state  purposes. 

STATE  REVENUES  FROM  INDIRECT  TAXES 

The  following  table  showing  total  state  revenues  for  1914  from  direct  and 
indirect  taxes  indicates  the  declining  importance  of  the  general  property  tax  in 
raising  the  revenues  for  the  state. 

General  Tax  Sinking  Fund $  218,843.24 

General  Tax  Common  School  Fund 2,188,434.28 

General  Tax  University  Fund 604,157.80 

General  Tax  Highway  Fund 3,260,757.10 

Liquor  Tax 1,639,053.62 

Liquor  Licenses 664,131.95 

Corporation  Insurance 1,498,590.75 

Corporation  Initial  Fee 304,761.44 

Corporation  Annual  Fee 2,314,568.35 

Corporation  Excise  Fee 3,348,200.19 

Automobile  Licenses 693,945.70 

Inheritance  Taxes 112,753.82 

Cigarette  Taxes - 57,694.50 

Oil  Inspection  Fee 131,276.76 

Superintendent  of  Banks 67,591.25 

Film  Censoring 21,845.60 

Building  and  Loan  Associations 34,924.03 

Public  Utility  Commissions 77,628.19 

Boiler  Inspection  Fees 27,972.50 

Exam.  Steam  Engineers 45,591.00 

Board  of  Agriculture 235,143.62 

Fish  and  Game  Comm 176,666.53 

Canal  Lands , 164,443.72 

Public  Audits 128,388.40 

Day  Patients— State  Hospital 369,782.83 

State  Institutions 610,953.55 


16  Taxation  in  Ohio 


Ohio  Reformatory 223,272.44 

Interest  on  Deposits 320,996.34 

All  Other  Sources 999,169.65 

Total  Receipts $20,544,539.15 

Only  a  fraction  over  $6,000,000  of  the  total  $20,000,000  comes  from  direct 
or  general  property  tax  and  this  direct  tax  is  more  than  offset  by  the  surplus 
in  the  treasury  at  the  close  of  the  year,  so  that  the  state  is  practically  assured 
of  an  adequate  income  whenever  it  adopts  the  policy  of  separation. 

EXPERIENCE  IN  CALIFORNIA 

California,  a  few  years  ago,  adopted  a  constitutional  amendment  empower- 
ing the  legislature  to  enact  laws  for  the  classification  of  property  and  the  separa- 
tion of  sources  of  income.  Liberal  laws  were  enacted  for  the  complete  separation 
of  state  and  local  taxation.  The  first  year's  experience  proved  entirely  satisfactory 
to  the  state  and  also  the  political  subdivisions.  The  state  obtained  considerably 
more  revenue  than  it  had  before  been  receiving;  the  local  governments,  on  the 
whole,  had  approximately  $4,000,000  more  to  spend;  the  average  tax  rate  upon 
property  was  reduced  more  than  20  cents  on  the  $100;  and  the  small  tax  payers 
were  actually  taxed  less  heavily  than  in  former  years. 

It  is  generally  deemed  advisable  in  the  application  of  the  principle  of  separa- 
tion to  provide  the  state  with  a  safe  margin  in  order  to  insure  sufficient  funds 
for  state  expenses.  This  can  easily  be  done,  as  pointed  out  by  Prof.  Seligman  and 
others,  by  reserving  to  the  state  the  right,  in  case  of  inadequate  revenue,  to  secure 
additional  revenue  by  apportioning  it  to  the  several  counties  on  the  basis  of  the 
total  expenditures  of  those  counties.  This  basis  of  apportionment  is  chosen  so 
that  the  state  revenue  necessary  to  be  raised  will  not  be  a  state  tax  on  property 
but  will  be  a  portion  only  of  the  local  revenue  distributed  to  each  community 
according  to  its  ability  to  pay. 

CONSTITUTIONAL  AMENDMENT 

In  order  to  secure  for  Ohio  relief  from  its  rigid  and  antiquated  system  of 
taxation,  a  constitutional  amendment  is  necessary.  It  is  not  the  purpose  of  this 
report  to  suggest  the  particular  wording  of  a  proposed  amendment,  but  only  to 
indicate  the  serious  defects  of  the  present  constitutional  provisions  and  emphasize 
some  of  the  essential  principles  to  be  included  in  an  amendment  which  it  is  hoped 
will  be  submitted  in  response  to  a  wide  spread  demand  of  the  people  of  the  state. 

No  system  of  taxation  will  prove  satisfactory  for  any  length  of  time  in  a 
wealthy  and  diversified  industrial  state  like  Ohio  unless  it  is  elastic;  easily 
adjusted  to  meet  continually  changing  social,  economic  and  industrial  conditions; 
just  in  its  distribution  of  the  tax  burden;  and  certain  of  yielding  sufficient 
revenues  for  public  purposes.  In  the  appendix  to  this  report  are  printed  a 
number  of  constitutional  provisions  or  proposed  amendments  from  other  states 
which  are  generally  regarded  as  among  the  more  progressive  constitutional  pro- 
visions and  as  fulfilling  one  or  more  of  the  above  requirements. 


Taxation  in  Ohio  17 


We  believe  there  is  no  more  urgent  task  before  the  people  of  Ohio  than 
the  task  of  preparing  and  submitting  to  the  voters  a  sane,  progressive  and  prac- 
tical constitutional  tax  amendment  which  will  permit  the  enactment  of  laws 
establishing  a  fair,  just  and  equitable  method  of  raising  revenue  for  public  pur- 
poses. The  present  system  is  unfair,  unsatisfactory  and  is  driving  capital  out 
of  the  state.  Trust  companies  in  the  east  are  registering  stocks  and  bonds  owned 
by  Ohio  citizens  and,  for  a  nominal  fee,  are  taking  care  of  the  dividends.  These 
stocks  and  bonds  escape  taxation.  Municipal  bonds  which  ought  to  be  sold  to 
Ohio  investors  are  of  no  interest  to  them  because  they  are  taxed  by  the  uniform 
rule.  The  strict  enforcement  of  the  law,  instead  of  lifting  the  burden  on  the 
farmer  and  small  home  owner,  makes  the  man  who  owns  tangible  personal  prop- 
erty such  as  horses,  cattle,  farm  implements,  grain,  farm  products,  or  a  well  fur- 
nished home,  bear  the  brunt  of  taxation.  It  is  not  a  question  of  approving  such 
methods  of  evading  taxation,  but  of  recognizing  the  fact  that  the  general  prop- 
erty tax  is  not  a  just  method  of  collecting  revenue,  and  has  been  a  failure  in  Ohio 
and  everywhere  it  has  been  tried. 

It  is  our  firm  conviction  that  if  Ohio  will  adopt  a  rational  tax  system,  one 
in  which  property  will  be  taxed  in  accordance  with  its  economic  condition  and 
at  a  rate  which  it  can  stand,  tax  evasion  will  largely  cease  and  a  great  majority 
of  our  citizens  will,  without  hesitation,  assume  the  burden  which  justice  and 
equity  places  upon  them. 


CONSTITUTIONAL  PROVISIONS 

(The  following-  constitutional  provisions  or  proposed  amendments  are  printed  in  order 
to  indicate  the  tendency  toward  classification  of  property  and  separation  of  sources,  and 
to  furnish  some  illustrations  of  progressive  attempts  to  remedy  unwise  and  antiquated  tax 
provisions). 

CALIFORNIA: 

(Adopted  1910). 

Section  1.  All  property  in  the  state  except  as  otherwise  in  this  constitution  provided,  not 
exempt  under  the  laws  of  the  United  States,  shall  be  taxed  in  proportion  to  its  value, 
to  be  ascertained  as  provided  by  law,  or  as  hereinafter  provided.  The  word  "property," 
as  used  in  this  article  and  section,  is  hereby  declared  to  include  moneys,  credits,  bonds, 
stocks,  dues,  franchises  and  all  other  matters  and  things,  real,  personal  and  mixed, 
capable  of  private  ownership;  provided,  that  a  mortgage  deed  of  trust,  contract,  or  other 
obligation  by  which  a  debt  is  secured  when  land  is  pledged  as  security  for  the  payment 
thereof  together  with  the  money  represented  by  such  debt,  shall  not  be  considered 
property  subject  to  taxation;  and  further  provided  that  property  used  for  free  public 
libraries  and  free  museums,  growing  crops,  property  used  exclusively  for  public  schools, 
and  such  as  may  belong  to  the  United  States,  this  State,  or  to  any  county  or  municipal 
corporation  within  this  State  shall  be  exempt  from  taxation.  The  Legislature  may  pro- 
vide, except  in  the  case  of  credits  secured  by  mortgage  or  trust  deed,  for  a  reduction 
from  credits  of  debts  due  to  bona  fide  residents  of  this  State.  All  buildings  and  so 
much  of  the  real  estate  on  which  they  are  situated  as  may  be  required  for  the  con- 
venient use  and  occupation  of  said  buildings,  when  the  same  are  used  solely  and  exclu- 
sively for  religious  worship,  shall  be  free  from  taxation;  provided  that  no  building  so 
used  which  may  be  rented  for  religious  purposes  and  rent  received  by  the  owner  therefor, 
shall  be  exempt  from  taxation. 

All  bonds  hereafter  issued  by  the  State  of  California,  or  by  any  county,  city  and 
county,  municipal  corporation,  or  district  (including  school,  reclamation  and  irriga- 
tion districts)  within  said  state,  shall  be  free  and  exempt  from  taxation. 

Section.  2.  Land,  and  the  improvements  thereon,  shall  be  separately  assessed.  Cultivated 
and  uncultivated  land,  of  the  same  quality,  and  similarly  situated,  shall  be  assessed  at 
the   same    value. 

Section  10.  All  property,  except  as  otherwise  in  this  Constitution  provided,  shall  be 
assessed  in  the  county,  city,  city  and  county,  town  or  township,  or  district  in  which 
it  is  situated,  in  the  manner  prescribed  by  law.  The  personal  property  of  every  house- 
holder to  the  amount  of  one  hundred  dollars,  the  articles  to  be  selected  by  each  house- 
holder,  shall  be  exempt  from   taxation. 

Section  11.  Income  taxes  may  be  assessed  to  and  collected  from  persons,  corporations, 
joint-stock  associations  or  companies  resident  or  doing  business  in  this  state,  or  any 
one  or  more  of  them,  in  such  cases  and  amounts,  and  in  such  manner  as  shall  be 
prescribed  by  law. 

(Then  follows  a   long  amendment  fixing  the   rates  on  various   forms  of  property). 

KANSAS: 

♦  (Defeated  November,  1914). 
Section  1.  The  Legislature  shall  have  power  to  establish  and  maintain  an  equitable  system 
for  raising  state  and  local  revenue,  and  may  classify  the  subjects  of  taxation  so  far 
as  their  differences  justify  the  same,  in  order  to  secure  a  just  return  from  each.  All 
property  used  exclusively  for  state,  county,  municipal,  literary,  educational,  scientific, 
religious,  benevolent  and  charitable  purposes,  and  personal  property  to  the  amount  of 
at  least  two  hundred  dollars  for  each  family,  shall  be  exempted  from  taxation.  Taxes 
may  be  imposed  on  incomes,  franchises,  privileges  and  occupations,  which  taxes  may  be 
graduated  and  progressive,  and  reasonable  exemptions  may  be  provided. 

KENTUCKY: 

(Adopted  in  1912,  but  declared  unconstitutional  because  of  failure  to  advertise  suffi- 
ciently). 
Section  1.  The  General  Assembly  shall  provide  by  law  an  annual  tax,  which  with  other 
resources,  shall  be  sufficient  to  defray  the  estimated  expenses  of  the  commonwealth 
for  each  fiscal  year.  Taxes  shall  be  levied  and  collected  for  public  purposes  only  and 
shall  be  uniform  upon  all  property  of  the  same  class  subject  to  taxation,  within  the 
territorial  limit  of  the  authority  levying  the  tax;  and  all  taxes  shall  be  levied  and 
collected  by  general  laws. 

The  General  Assembly  shall  have  power  to  divide  property  into  classes  and  to 
determine  what  class  or  classes  of  property  shall  be  subject  to  local  taxation.  Bonds 
of  the  state,  counties,  municipalities,  taxing  and  school  districts  shall  not  be  subject  to 
taxation. 


MAINE: 

(Adopted  in  1913). 
Section  8.  All  taxes  upon  real  and  personal  estate,  assessed  by  authority  of  this  state, 
shall  be  apportioned  and  assessed  equally  according  to  the  just  value  thereof.  But  the 
legislature  shall  have  the  power  to  levy  a  tax  upon  intangible  personal  property  at  such 
rate  as  it  deems  wise  and  equitable  without  regard  to  the  rate  applied  to  other  classes 
of  property. 


(Adopted  in  1905). 

Section  1.  The  power  of  taxation  shall  never  be  surrendered,  suspended  or  contracted 
away.  Taxes  shall  be  uniform  upon  the  same  class  of  subjects,  and  shall  be  levied 
and  collected  for  public  purposes,  but  public  burying  grounds,  public  school  houses, 
public  hospitals,  academies,  colleges,  universities,  and  all  seminaries  of  learning,  all 
churches,  church  property,  and  houses  of  worship,  institutions  of  purely  public  charity, 
and  public  property  used  exclusively  for  any  public  purpose,  shall  be  exempt  from 
taxation;  and  there  may  be  exempted  from  taxation  personal  property  not  exceed- 
ing in  value  |200,  for  each  household,  individual  or  head  of  a  family,  as  the 
legislature  may  determine.  Provided  that  the  legislature  may  authorize  municipal 
corporations  to  levy  and  collect  assessments  for  local  improvements  upon  property 
benefitted  thereby  without  regard  to  a  cash  valuation,  and,  provided  further,  that  nothing 
herein  contained  shall  be  construed  to  affect,  modify  or  repeal  any  existing  law  providing 
for  the  taxation  of  the  gross   earnings  of  railroads. 

(Provisions    proposed    but    not    adopted). 

Section  1.     The   power  of   taxation    shall   never   be    surrendered   or   suspended. 

Section  2.  All  taxes  shall  be  uniform  upon  the  same  class  of  subjects  within  the  territorial 
limits  of  the  authority  levying  the  taxes;  and  shall  be  levied  and  collected  under  general 
laws   for  public  purposes. 

Section  3.  The  legislature  may,  by  general  laws,  provide  for  the  apportionment  to  counties 
of  the  amount  of  revenue  to  be  raised  therein  for  state  purposes,  and  may,  in  any  law 
providing  for  such  apportionment,  authorize  counties  to  select  the  subjects  upon  which 
revenue  is  to  be  raised  therein  for  state  or  county  purposes,  and  to  apportion  such 
revenue  among  the  cities,  villages  and  townships  of  the  county. 

Section  4.  The  legislature  may,  by  a  general  law  or  a  special  act,  authorize  municipal 
corporations  to  levy  assessments  for  local  improvements,  or  upon  the  property  to  be 
benefitted  by  such  improvements,  or  both,  without  regard  to  a  cash  valuation,  and  in 
such   manner  as  the  legislature   may  prescribe. 

NORTH    DAKOTA: 

(Adopted  1914). 
Section  1.  Taxes  shall  be  uniform  upon  the  same  class  of  property  including  franchises 
within  the  territorial  limits  of  the  authority  levying  the  tax,  and  shall  be  levied  and 
collected  for  public  purposes  only;  but  the  property  of  the  United  States,  and  of  the 
state,  county  and  municipal  corporations,  shall  be  exempt  from  taxation;  and  the 
legislative  assembly  shall  by  general  law  exempt  from  taxation  property  used  exclusively 
for  school,  religious,  cemetery,  charitable  and  other  public  purposes  and  personal 
property  to  any  amount  not  exceeding  in  value  two  hundred  dollars  for  each  individual 
liable  to  taxation;  provided  that  all  taxes  and  exemptions  in  force  when  this  amendment 
is  adopted  shall  remain  in  force,  in  the  same  manner  and  to  the  same  extent,  until 
otherwise   provided  by  statute. 

OREGON: 

(Defeated  in  1914). 
Section  1.  The  legislative  assembly  shall,  and  the  people  through  the  initiative  may, 
provide  by  law  uniform  rules  of  assessment  and  taxation.  Taxes  shall  be  levied  on 
such  subjects  and  in  such  manner  as  shall  be  prescribed  by  general  law.  Reasonable 
classifications  of  the  subjects  of  taxation  may  be  imposed.  Taxes  may  be  imposed  on 
incomes,  from  whatever  source  or  sources  derived;  such  taxes  may  be  either  propor- 
tional or  graduated  and  progressive,  and  reasonable  exemptions  may  be  provided. 


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